More than ever, Metro turns to tax breaks to spur development

Created 04/01/2012 - 8:05pm

At the height of Peyton Manning hysteria in Nashville, when it briefly appeared the Tennessee Titans had emerged as the frontrunner to land the services of the celebrated NFL quarterback, rookie Metro Councilman Josh Stites chimed in with a clever tweet:

“I’m as excited as the next guy about Peyton coming to the Titans,” the District 13 councilman told his social media followers last month. “I’m not excited about the tax abatement Metro will surely offer him.”

Stites was joking, of course. But as with any good punch line, he hit on something.

After a series of deals, a trend is starting to crystallize: Mayor Karl Dean’s administration, joined by Metro Council support, has turned to corporate property tax breaks — all in the name of economic development — more readily than at any point in the city’s past. It’s an incentive-based approach that originated in Nashville during the Phil Bredesen era but represents a sharp break from Dean’s predecessor Bill Purcell.

“This is a competitive playing field that we’re operating on,” Matt Wiltshire, director of the mayor’s Office of Economic and Community Development, told The City Paper when asked about the flurry of incentives. “It’s really all about jobs. And in this particular time of economic distress, that playing field can tend to get more competitive.”

This week alone, the Metro Council is expected to give final approval for a $3 million property tax break to Nashville-based Hospital Corporation of America, the world’s largest private health care provider. The financial carrot, a 60 percent abatement on real and personal property over seven years, is intended to spur a new $200 million HCA data center in Antioch.

In a separate item, the council will consider a significantly larger 12-year, 60 percent property tax abatement for Gaylord Entertainment Co. and Dollywood Co. These two hospitality companies, through a group called Park Holdings, would receive the incentive — an estimated $5.8 million abatement — as part of plans to construct a much-ballyhooed water and snow park across from the former Opryland grounds.

The proposals, likely to breeze through the council, come just three months after Metro awarded a tax break in excess of $6 million to Williamson County-based LifePoint Hospitals to accommodate the hospital chain’s county-line headquarters jump — a mere three-mile move down Old Hickory Boulevard — to Davidson County.

Wiltshire, who has held his post for 10 months, said the administration’s deals target job creation during an economic downturn. HCA’s 76,000-square-foot data center is supposed to generate 155 full-time jobs. The water and snow park, which will carry the Dollywood name, is expected to create more than 1,600 annual jobs when it opens, according to a University of Tennessee economic impact study. LifePoint, meanwhile, will simply bring its existing jobs across the border to Davidson from Williamson.

“There are certain times when we think that we need to include tax incentives to close the deal and bring the jobs to town,” Wiltshire said.

The incentives at issue — known as PILOT (payment in lieu of taxes) arrangements — are hardly uncommon for a large municipality in the high-stakes game of corporate expansion or relocation, but Nashville has never seen today’s degree of activity.

The first and by far the largest PILOT agreement in Nashville’s history came in the final days of Bredesen’s administration in 1999 when Dell Computers received a whopping 40-year abatement on 100 percent of property to build a new plant near the Nashville International Airport.

Purcell, whose 1999-2007 tenure overlapped with a time of general economic prosperity, countered with no such PILOT deals.

Dean’s administration hasn’t engineered a deal on scale with the Dell arrangement. Rather, they’ve negotiated smaller PILOTs selectively, with Nashville companies often recipients of the tax breaks. Besides the three latest PILOT agreements, the council has signed off on the Dean administration’s $3.7 million property tax abatement for HealthSpring; an abatement totaling $2.3 million for Carlex Glass America; and a $300,000 tax break for Standard Candy Co.

“Obviously, there’s a different philosophical approach to the concept of how best to attract businesses to a particular area,” said David Manning, Purcell’s former finance director, adding that many prefer economic incentives. “Our belief was that it was better to invest in the whole community, schools as well as infrastructure and things of that nature, to create an environment that allowed for the kind of economic growth that was occurring at that time.

“I don’t think there was any question that Nashville was served quite well by that approach.”

He added: “I don’t believe most businesses make their decisions on taxes. They make their decisions on a wide variety of factors — taxes may be one of them. But, I don’t think it is a commanding factor in the decisions that most businesses make with respect to location.”

Wiltshire, citing a recent Stillwater, Okla., account in which the government there authorized a tax rebate to spur a new Olive Garden, suggested other municipalities award incentives for far less economic benefit than Metro’s deals produce.

Still, the obvious question for Nashville’s two pending PILOT deals is whether the private investments would occur without public assistance. Davidson County seems like a natural destination for both HCA and Gaylord, given their existing presence here.

Nonetheless, Wiltshire called both incentives “necessary components” to finalize the projects: “We could be right, we could be wrong, but we believe that they were necessary. We certainly wouldn’t give incentives if we didn’t feel they were absolutely critical.”

Wiltshire said HCA had explored Texas and Virginia for its new data center. He said Metro’s interest in the water and snow park deal is about “filling a niche in the tourism market that we haven’t had since Opryland left,” one that extends to families visiting on vacation and conventioneers opting or an extended stay.

“The reality is, organizations like Dollywood and Gaylord have a variety of investment opportunities,” he said. “So it’s not, were they going to build this theme park somewhere else. The question is were they going to build this theme park, or were they going to build some other addition to a hotel, or in Dollywood’s case, an expansion of other ventures and other entertainment venues that they have.”

Unlike past PILOT arrangements, both the HCA and theme park pieces of legislation have so-called “performance requirements,” based on future job growth or investment, which the companies must meet to continue to receive the benefits. “We think it’s appropriate public policy to have these protections,” Wiltshire said.

The HCA and water-and-snow park abatements seem likely to sail through the council. HCA’s financial package passed its second of three votes last month unanimously after no deliberation. Few have spoken against Metro’s more frequent use of tax breaks.

“I think the Dean administration is being aggressive in trying to stimulate as much activity as they can,” said At-large Councilman Ronnie Steine, adding that the past three deals have been “responsive to concerns” of the council.

“In this economic environment, you have got to be aggressive and competitive with the rest of the world if you’re going to create an environment that folks want to invest in and create jobs in,” he said.

Stites, elected to the council last fall, is rare in questioning the wisdom of abatements.

“Generally, I don’t like them simply because there are a lot of people [who] don’t get them,” he said. “More people don’t get them than do get them. How do we decide who gets them? It’s arbitrary, and it’s decided behind closed doors. Nobody knows the criteria that we use to decide who’s going to get a tax abatement.”

Stites said he “understands the mathematics” that leads many to support property tax abatements. Still, he called the trend an “unsustainable policy.” He also suggested the tax breaks are even more problematic during a time when observers are expecting a Metro property tax increase in the near future.

“I think people are going to be outraged because we have given so many tax abatements to very profitable corporations, and then we’re going to turn around and ask for a tax increase for everybody else,” he said. “I hope there’s a lot of people asking, ‘Why are we doing this?’ ”